Mechanical Technology

Mechanical Technology — August 2015

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Special report

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hile employed at WSP,

Simon Berry’s key role

was on the financial man-

agement side of engineer-

ing projects. “Good projects are associ-

ated with good finances and what that

really means is getting the fees right

upfront. But there is currently chaos in

the engineering consulting industry due

to the discounting of fees,” Berry informs

MechTech

Showing a bar-chart from Consulting

Engineers South Africa (CESA), Berry

says that this local association has been

tracking what is happening to fees in

the industry since 2006. “A doctor or

a lawyer will charge you a fee for every

consultation or for every hour of their

time, so they are compensated for every

hour that they work. But engineers and

architects operate on a weird principle

where engineering input is calculated

based in the total project cost, regardless

of how much or how little engineering is

required. So if the agreed fee is 10% on a

R10-million project, then the engineering

consultancy may only bill R1-million,”

he continues.

So, by installing a Rolls Royce of

HVAC systems, the engineer might be

paid twice as much in fees as a better

engineered but cheaper equivalent, even

though the effort involved in deliver-

ing the former is probably significantly

less. This can lead to a “mediocrity”

cycle, where consultants simply buy in

known products that don’t require any

engineering input. “Low fees lead to a

lot of passing on of responsibilities to the

contractor,” Berry suggests.

The CESA bar chart shows the

discounts being offered against the

ECSA-recommended fees. “The average

discounts across all engineering consul-

tancy sectors have been rising steadily:

from an average of 15% in June 2007 to

over 25% by 2015. But this also varies

from sector to sector, so civil engineer-

ing contractors, for example, are having

to offer discounts of 50 to 60% in order

to secure projects work,” he points out,

adding that HVAC and mechanical con-

sultants are now regularly having to offer

discounts in excess of 40%.

“It’s a race to the bottom, with ev-

eryone undercutting everyone else and I

have a theory as to why this is happen-

ing. Rather than getting paid properly for

the services engineers offer, and taking

that money and investing back into their

people – via training and mentoring,

paying proper salaries and bonus incen-

tives – the human resources budgets are

squeezed, so companies are not develop-

ing young engineers, building capacity or

retaining talent. This causes our bright

engineers to migrate into management

consulting and financial roles, where they

get paid properly and are appropriately

supported and incentivised.

Showing a diagram of the “spiral into

mediocrity” he says uncontrolled fee dis-

counts result in low salaries, which cause

talent flight and, ultimately, in poorer

engineering. “And once a consultancy is

associated with poor quality projects then

it can’t win tenders without offering huge

discounts,” Berry explains. “This cycle

underlines the basic problem and will

almost certainly lead to an unsustainable

industry from a financial point of view,”

he warns. Fair fees, on the other hand,

allow consultants to attract and reward

talent, which enables consultants to de-

liver quality and innovative engineering

for their clients.

In terms of the age brackets for en-

gineers working in consulting, he shows

a comparison of data from the US and

South Africa. “In the US, you get a nice

rising curve with the highest percentages

of experienced engineers falling into the

35 to 60 age bracket. The South African

profile has an odd shape with a missing

‘bucket’ of experience in that same age

range. I see this all the time. A lot of the

older experienced ‘grey-haired’ engineers

are retiring and the new people making

decisions on discounts and fees are 30

to 40 year olds. At the same time, we

have a higher proportion of newly trained

engineers in the 25-30 age bracket.

Fresh Projects was founded in 2014 to assist consulting engineers to manage the

financial side of engineering projects.

MechTech

talks to Simon Berry (left), the company’s

founder, about the dangerous and unsustainable spiral towards mediocrity associated

with discounting engineering fees.

Engineering consultancy: avoiding

“The effect is – and I know this from

personal experience – that young engi-

neers get frustrated because they can’t

get development time with their mentors.

And the reason is that the more senior en-

gineers are so busy trying to extract some

profit from the poor fees that they simply

do not have time to do mentorship.

“We need more engineering ’wisdom’

in the 40+ age bracket so that respon-

sible engineers will have time to nurture

young talent. Senior guys have seen it

all before, they have been through reces-

sions and come out of them. They have

experiences of being cheated and bullied

by clients and they know which clients

manage their contracts and information

flows well. So they can differentiate

between the clients that can be offered

good discounts and those tenders that

are likely to lose the company money,”

Berry notes.

“Also, while it is vital to establish fair

fees from the start of a consultancy, engi-

neers like the creative side, designing and

solving technical problems. They hate

admin, so they generally shy away from

performing cost calculations and tend to

just accept whatever fees the client is

offering. They can, therefore, easily end

up losing money on a job,” he continues.

Fresh Projects has developed a solu-

tion for engineers and architects in the

built environment to help solve some of

these admin problems. “We have devel-

oped an App-based online platform that

is tailor made for South African consulting

engineers,” Berry reveals, adding that the

platform does three main things:

1 Making sure the fee is sufficient

At the starting point of a project, “our

solution makes sure engineers are

establishing appropriate fees” into

their projects, ie, that the consulting

engineer is getting his fees right. “By

using a planner and identifying who

will be working on the project and the

total predicted engineering time, we

simplify the admin task of calculating

the costs of delivering on a project.

“Then, using the ECSA fee scales, we